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How recent CFPB guidance changes affect financial institutions

Written by admin on . Posted in Blog, Compliance & Regulations.

By Bill Elliott, CRCM; director of compliance education, Young & Associates

Since its inception in 2011, the Consumer Financial Protection Bureau (CFPB) has responded to a wide range of issues — even without an act of Congress, such as with the Truth in Lending Act. The agency has relied on compliance bulletins, advisory opinions, interpretive rules and circulars to provide information regarding priorities and interpretations of federal consumer financial laws.

With a new administration in Washington, the CFPB has gone through a long and difficult transition that (as of this writing) is still not complete. Pending lawsuits and uncertainties created by the administration may cause additional changes, so changes in the agency may continue.

The original plan for the agency was to have a measure of independence from the natural changes from administration to administration. Over the last 14 years, mostly through court cases, the agency’s independence has eroded. The actions discussed below are, at least at some level, the direct result of that erosion.

Latest CFPB guidance changes

CFPB Acting Director Russell Vought
CFPB Acting Director Russell Vought

On May 12, 2025, CFPB Acting Director Russell Vought announced the withdrawal of 67 guidance documents, consisting of:

  • Eight policy statements
  • Seven interpretive rules
  • 13 advisory opinions
  • 39 other guidance documents such as circulars and bulletins

The reasoning behind this action was that policies implemented by guidance represent an unfair regulatory burden and might be contrary to federal law.

“In many instances, this guidance has adopted interpretations that are inconsistent with the statutory text and impose compliance burdens on regulated parties outside of the strictures of notice-and-comment rulemaking,” Vought said. “But even where the guidance might advance a permissible interpretation of the relevant statute or regulation, or afforded the public an opportunity to weigh in, it is the Bureau’s current policy to avoid issuing guidance except where necessary and where compliance burdens would be reduced rather than increased.”

Vought further outlined the new policy and the reasons for it:

  • The CFPB commits to issuing guidance only when that guidance is necessary and would reduce compliance burdens rather than increase them. “Historically, the Bureau has released guidance without adequate regard for whether it would increase or decrease compliance burdens and costs,” he wrote. “Our policy has changed.”
  • The CFPB commits to reducing its enforcement activities in conformance with President Trump’s directive to deregulate and streamline bureaucracy. He noted that many of the CFPB’s enforcement responsibilities overlap or duplicate other state and federal regulatory efforts.
  • “Finally, to the extent guidance materials or portions thereof go beyond the relevant statute or regulation, they are unlawful, undermining any reliance interest in retaining that guidance,” he said.

This may not signal the demise of all 67 items. The CFPB stated it intends to continue reviewing these guidance documents. Some may ultimately be reinstated, at least in part. Until that happens, the CFPB and presumably all other banking regulators will not enforce or otherwise rely upon the guidance documents.

A closer look at the CFPB withdrawals

Many of these withdrawn guidance documents received justified criticism. For example, the Bureau withdrew the 2024 circular titled Improper Overdraft Opt-In Practices. This document imposed additional requirements, well beyond what the regulation requires, on institutions’ record-keeping practices. This occurred without going through formal notice-and-comment rulemaking under the Administrative Procedure Act.

Two other notable withdrawals:

The first involves Unfair, Deceptive or Abusive Acts or Practices (UDAAP) concerns with digital platforms involving non-mortgage consumer financial products and services.

Although the CFPB removed this document, it kept an advisory opinion that addresses similar UDAAP concerns and Real Estate Settlement Procedures Act (RESPA) Section 8 issues for digital platforms offering mortgage products.

The second rescission involved the issue of sexual preference under Regulation B. Sexual preference should never be a reason for denying a loan, but some may interpret rescission of that document as removing some protections for that segment of the lending public.

In spite of these removals, the CFPB continues to pursue cases involving consumer reporting, online installment lending, mortgage lending and debt collection.

CFPB priorities

In April 2025, Mark Paoletta, chief legal officer of the CFPB, sent a memorandum to all staff setting forth the priorities of the new leadership.

Key aspects of the priorities include the following:

  • A shift back to prioritizing banks over nonbanks and enlisting the states to conduct supervision and enforcement over nonbanks.
  • A focus on mortgages (highest priority), consumer reporting, debt collection, fraudulent overcharges and fees.
  • A deprioritization of peer-to-peer platforms and lending, consumer data, remittances and digital payments, among other areas.

If you would like to review the entire CFPB document, you can find it here.

Contact Young & Associates today at consultants@younginc.com if we can assist in any way with these or any other regulatory compliance issues.

The importance of appraisal reviews in protecting financial institutions

Written by admin on . Posted in Blog, Risk Management.

By Casey Simpson; consultant and manager of appraisal review services, Young & Associates

In the real estate industry, accurate and unbiased property appraisals are critical. These influence lending decisions, investment strategies, tax assessments and legal outcomes. Appraisal reviews are a safeguard for financial institutions, investors and the public. Additionally, the regulators outlined this process as a requirement.

Accurate and unbiased property appraisals drive critical decisions in lending, investment strategies, tax assessments and legal outcomes. Appraisal reviews provide safeguards for financial institutions, investors and the public, and regulators mandate the process.

Although appraisal value thresholds have changed over time, the obligation to review appraisals has not. Financial institutions must still conduct a review whenever an appraisal supports a transaction.

The Interagency Appraisal and Evaluation Guidelines from 2010 specifically states, “As part of the credit approval process and prior to a final credit decision, an institution should review appraisals and evaluations to ensure that they comply with the Agencies’ appraisal regulations and are consistent with supervisory guidance and its own internal policies. This review also should ensure that an appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction.”

Appraisal Disciplinary Actions chart
Disciplinary cases show that nearly all appraisal deficiencies could have been remediated or prevented through proper reviews. Data: Ohio Appraiser Disciplinary Actions 2020-2025

What are real estate appraisal reviews?

A real estate appraisal review evaluates an appraisal report for completeness, accuracy, consistency and compliance with applicable standards.

Qualified professionals who are independent from the subject transaction and have experience in the relevant property type should perform appraisal reviews to maximize the benefits. Use consistent review checklists with a clear understanding of the client’s scope of work. Align with client-specific requirements and regulatory compliance. Provide a detailed narrative of the transaction appraisal that documents findings and highlights deficiencies or recommendations.

Key benefits of real estate appraisal reviews

  • Enhances accuracy and reliability: Errors, omissions, or flawed assumptions in an appraisal can result in inaccurate valuations. A review identifies discrepancies and unsupported conclusions to ensure the final report is accurate and defensible.
  • Mitigates financial risk: For lenders and investors, misvalued properties carry significant risks. Reviews serve as a risk.
  • Ensures regulatory and standards compliance: Financial institutions are subject to strict regulatory requirements, including the Uniform Standards of Professional Appraisal Practice (USPAP), the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Appraisal reviews help ensure compliance with these requirements, protecting the institution from legal or regulatory penalties.
  • Improves consistency across valuations: For organizations managing multiple appraisals, reviews promote consistency in methodology, terminology and value conclusions. This supports transparency and establishes quality standards.
  • Cost limitations: Financial institutions with qualified in-house reviewers can use them as a resource to reduce risk. However, third-party providers can provide review services, with costs passed on to the customer as a line item on the closing settlement sheet.

Regulatory compliance explained

Uniform Standards of Professional Appraisal Practice (USPAP)

The purpose of USPAP is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. It sets forth standards for all types of appraisal services, including real property, personal property, business, appraisal review and mass appraisal. It is essential that appraisers develop and communicate their analyses, opinions and conclusions to intended users in a manner that is meaningful and not misleading. (source: www.appraisalfoundation.org and www.appraisers.org)

The Dodd-Frank Wall Street Reform and Consumer Protection Act

Commonly known as Dodd-Frank, it is legislation that was passed by the U.S. Congress in response to financial industry behavior that led to the financial crisis of 2007–2008. It sought to make the U.S. financial system safer for consumers and taxpayers. It established a number of new government agencies tasked with overseeing the various components of the law and, by extension, various aspects of the financial system. The Dodd Frank Act aimed to protect the independence of appraisers, reasonable and customary appraisal fees, appraiser certification and education standards, requirements for Appraisal Management Companies (AMC’s), standards for Automated Valuation Models (AVMs) and Broker Price Opinions (BPOs), additional provisions for high-risk mortgages, among other issues. (source: www.investopedia.com by Adam Hayes updated February 01,2025 and Regulatory Issues Facing the Real Estate Appraisal Profession)

Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)

FIRREA has reshaped lending practices, particularly in real estate and mortgage financing. Lenders must adopt rigorous underwriting standards to ensure loans are extended to creditworthy borrowers, reducing the risk of defaults and enhancing financial system stability. Certified appraisals are now required to ensure accurate property valuations, critical for mitigating systemic risk in mortgage-backed securities. (source: www.accountinginsights.org Published Feb 13, 2025 and Regulatory Issues Facing the Real Estate Appraisal Profession)

Financial institutions face heightened risk if appraisals are not thoroughly reviewed. Independent reviews reduce risk, ensure adherence to standards and save valuable staff time. At Young & Associates, we provide independent appraisal reviews that give your team confidence in lending decisions while reducing compliance burdens. Let Young & Associates help you navigate appraisal compliance with confidence and efficiency. Reach out for a consultation.

Intel’s Ohio investment creates opportunity for economic growth and lending

Written by admin on . Posted in Blog, Lending & Loan Review.

Digital render of Intel's new facility
Digital render of Intel’s new facility located in Central Ohio. Photo courtesy of Intel

By Alex Heavner; Credit Analyst, Young & Associates

Intel is transforming nearly 1,000 acres in New Albany, Ohio, with a $28 billion investment in two advanced chip factories. The site will produce some of the industry’s most advanced semiconductor processors. Ground broke on the project in 2022, with completion anticipated by 2027.

The benefits of a tech giant like Intel establishing a presence in Central Ohio are vast. The direct economic impact begins with the creation of more than 7,000 construction jobs. Once operational, Intel expects to employ at least 3,000 individuals on-site or remotely. Beyond these, more than 10,000 directly impacted workers in the surrounding communities will experience significant growth in the years to come.

Intel intends to onboard more than 350 Ohio-based companies into its supply chain. Small businesses, franchises and startups are expected to flock to the area to capitalize on the expanding ecosystem. Intel’s investment may create tens of thousands of new jobs in industries beyond its own.

Intel has also committed $100 million to support educational initiatives in Ohio, aimed at developing a skilled talent pipeline and strengthening local research institutions. As of May 2025, $17.7 million of that commitment has been allocated. This funding has awarded more than 2,300 scholarships and helped educate over 9,000 students through partnerships with more than 80 colleges and universities. In addition, Intel is rolling out Khanmigo, an AI-powered tutor and teaching assistant, to select middle and high schools.

How Intel helps construct opportunity

According to comprehensive economic models, Intel’s presence is expected to increase Ohio’s GDP by $2.3 billion annually. A significant portion of this growth will stem from the rise in local business development — creating a surge in demand for commercial construction and property development financing.

New Albany is uniquely positioned for this expansion. It is the only Columbus suburb where commercial land use outpaces residential, with 43 percent allocated to business and 31 percent to housing. The city actively seeks to reduce the residential tax burden by increasing commercial revenue, which currently comprises more than 80 percent of the city’s general fund — largely derived from income taxes collected in the business park. This commercial focus directly contributes to enhanced infrastructure, services and quality of life for residents.

Lending: The backbone of community growth

None of this economic potential is realized without one critical component: access to capital. Lending is the engine that turns opportunity into action.

Contractors, electricians, HVAC technicians and landscapers will need financing to purchase or lease vehicles and equipment essential for their trades. Many will also rely on financing for payroll and up-front material costs during lengthy projects.

Restaurants, retailers and healthcare providers require funding to secure land, finance construction, purchase equipment and obtain the necessary licenses to open and operate. In short, every facet of the economy will be touched by lending.

Construction lending, however, carries unique risks. Delays caused by weather, labor shortages or supply chain disruptions are common. Rain could halt progress for a week and time lost is money lost. These interruptions can jeopardize loan repayment and force lenders to make difficult decisions — continue funding, renegotiate terms or sell the loan to mitigate losses.

Additionally, fluctuating material costs and unforeseen expenses can lead to budget overruns. Mismanagement could prevent borrowers from repaying loans, increasing the risk of default. While the unfinished structure typically serves as collateral, its incomplete status may significantly reduce its resale value, leaving lenders exposed.

To manage these risks, financial institutions employ construction inspectors who monitor progress and confirm that funds are being used appropriately. Construction loans are structured with draw schedules — funds are released only after specific milestones are verified. Borrowers often self-fund the initial project phase or may apply for a mobilization draw, a smaller, closely monitored loan intended to cover startup expenses.

Fueling small business growth

Not all small businesses will qualify for traditional loans. That’s where Small Business Administration (SBA) programs come into play.

SBA 7(a) loans provide up to 85 percent loan guarantees, significantly reducing the lender’s risk and encouraging lending to small and growing businesses. These guarantees are not a safety net for default. Borrowers are still held accountable and collateral is pursued before the SBA covers any shortfall.

SBA 504 loans offer another avenue, providing long-term, fixed-rate financing for purchasing real estate, buildings and large equipment. These options are crucial for entrepreneurs looking to seize the opportunities Intel’s investment is creating.

Intel’s investment prepares Central Ohio for progress

Financial institutions are proactively expanding their operations in Central Ohio to meet the demands of this unprecedented economic growth. Many are opening regional hubs, hiring local talent and leveraging advanced technologies to streamline services and improve responsiveness.

For instance, Wells Fargo has established a new technology center in the Easton area of Columbus, expected to generate up to 500 jobs with average annual salaries of $125,000. Regional and community banks are also taking strategic steps, such as partnering with colleges and universities to strengthen talent pipelines and improve workforce readiness.

Institutions are embracing fintech and artificial intelligence (AI) to enhance efficiency, accuracy and scalability. AI tools now support underwriting decisions, smart contract development through blockchain improvements and embedded finance integration — all essential for staying competitive in a fast-evolving market.

Intel creates strategic positioning for financial institutions

To fully capitalize on the economic momentum generated by Intel’s investment, financial institutions must act strategically, proactively positioning themselves to serve both the direct and peripheral financial needs arising in the region. This includes preparing for a substantial increase in commercial lending activity, establishing competitive advantages and reinforcing operational infrastructure.

  1. Expand commercial lending capabilities: Assess commercial lending teams and workflows. Strengthen underwriting capacity and approval efficiency to handle increased loan volume.
  2. Build industry expertise: Develop knowledge of construction, SBA and commercial real estate lending. Partner with experts like Young & Associates for guidance and training.
  3. Strengthen risk management and compliance: Update credit policies, perform stress testing and enhance compliance programs. Ensure regulatory readiness in areas like CRA, fair lending and BSA/AML.
  4. Invest in scalable technology: Modernize systems to improve loan origination, analytics and customer experience. Utilize AI and data tools to increase capacity without sacrificing quality.
  5. Forge local and regional partnerships: Build relationships with developers, contractors and municipalities for early insight and lending opportunities.
  6. Prepare for talent demands: Plan for increased hiring needs. Launch internship programs and partnerships with universities to attract future talent.

Opportunity meets expertise

At Young & Associates and Y&A Credit Services, we support financial institutions navigating increased demands brought on by the Intel development and broader regional growth. Our decades of experience allow us to provide highly specialized consulting in areas such as underwriting, risk management, regulatory compliance and operational scalability.

Our consultants are well-versed in both national regulations and Ohio’s unique financial environment. We remain committed to helping community financial institutions capitalize on opportunity while remaining compliant, competitive and resilient.

Breaking down agricultural production revenue cycles for ag lending

Written by admin on . Posted in Blog, Lending & Loan Review.

By Craig Horsch, Consultant, Young & Associates

With Ag borrowers facing tight margins in 2025, financial institutions must carefully examine agricultural production revenue cycles to measure each borrower’s actual crop and livestock production against annual projections.

Additionally, measuring and testing each different revenue stream the farmer produces crops (corn, soybeans, wheat, oats, milo, hay, etc.) or livestock (beef cattle, dairy cattle, hogs, chickens, turkeys, sheep, goats or other livestock)

Financial institutions have historically analyzed the grain crops (corn, soybeans, wheat, oats, milo, hay, etc.) revenue production cycle very well; however, livestock revenue streams are not as frequently monitored to evaluate the borrower’s efficiencies within their respective revenue production cycles.

Analyzing the agricultural production revenue cycles

Measuring the revenue production cycles also provides the bank with an opportunity to identify the following:

  • Assess the borrower’s management skills.
  • The accuracy of the borrower’s projections.
  • The efficiencies within the production cycle.
  • The weakness within the production cycle.
  • Financial trends (negative or positive) within the production cycle.
  • Compare actual performance with projected revenue and expenses.
  • Where did the production cycle provide a benefit to the operations?
  • Where did the production cycle provide a detriment to the operations?
  • Were there any surprises (positives or negatives) during the production cycle?
  • Were projections within 10 percent of the actual performance?
  • Were there any critical or unusual events that occurred during the production cycle that negatively impacted revenue?

When underwriting an Ag borrower, consider analyzing and discussing each of the borrower’s revenue streams that contribute toward the repayment of the loan, such as the number of livestock or acres they farm overall, acres owned and leased, the projections for the upcoming year and the percentage each revenue stream contributes to the overall revenue stream. If livestock, discuss the type of livestock (dairy, beef, hogs, chickens, turkey, sheep, goats, etc.), the number of head, if a cow/calf (beef or dairy cattle) or dairy operation, a farrowing only, a finishing only or a farrow to finishing (hogs), a poultry or other livestock operation.

The USDA-ERS projects 2025 net farm income at $179.8 billion, up $52 billion from last year on record livestock prices and government payments.Not all sectors share in the gain. Crop receipts are forecast to fall 2.5 percent, led by declines in corn, soybeans and wheat, while fruits, nuts and cattle continue to rise. These swings, shown in the chart, reflect a long history of volatility. For lenders, the bottom line is clear: repayment risk depends on where borrowers are in the cycle, not just on headline numbers.
The USDA-ERS projects 2025 net farm income at $179.8 billion, up $52 billion from last year on record livestock prices and government payments. Not all sectors share in the gain. Crop receipts are forecast to fall 2.5 percent, led by declines in corn, soybeans and wheat, while fruits, nuts and cattle continue to rise. These swings, shown in the chart, reflect a long history of volatility. For lenders, the bottom line is clear: repayment risk depends on where borrowers are in the cycle, not just on headline numbers.

Discuss production projections for the upcoming year or the number of turns per year (hogs & poultry), etc. By completing this analysis, the bank may be able to identify which revenue stream is the strongest and weakest and which is the largest and smallest contributor to the overall revenue stream.

Identify the sources of revenue, such as grain, dairy, beef, hogs, poultry, sheep, goats or other livestock. Indicate each source’s share of total production in dollar amounts or percentages and explain how often the cycle for each source is completed. It is important to confirm that the producer is accurately capturing pertinent data for each revenue stream.

Projections vs. reality in agricultural production revenue cycles

Compare the production cycle actual performance with the borrower’s projections for the ag related cycle being measured.

  • Are they very accurate based upon the conditions of the respective cycle?
  • Is their revenue production within 10 percent of their budgeted projections?
    1. This is a way to assess the borrower’s budgeting capabilities
    2. Farm management skills
    3. Knowledge of costs
    4. Are they realistic pricing costs & selling commodity prices?
  • Do they know their costs?
  • Provide a look-back period: Are their projections reasonable compared to their actual costs?

Stress Test the borrower’s projections by 10 percent on price and 10 percent on yield to determine where the projected cash flow would be if a major adverse event occurred during the crop or livestock cycle, such as drought, bird flu, hoof & mouth, mastitis, etc.

By analyzing each revenue cycle, banks can identify strengths and weaknesses in a borrower’s management, budgeting, marketing and knowledge of costs and markets, thus improving the credit risk analysis of current or requested facilities.

The risk of requiring guarantors: ECOA and Regulation B explained

Written by admin on . Posted in Blog, Compliance & Regulations.

By William J. Showalter, CRCM; senior consultant, Young & Associates

You would think after nearly 50 years, we could get this one right. The law passed in the mid-1970s and the rules for additional signatures have not really changed since. But, joint signature issues comes up regularly at banks, thrifts and other lenders to this day. Regulation B, which implements the Equal Credit Opportunity Act (ECOA), is pretty straightforward on this point.

Regulation B explained

Regulation B prohibits a lender from requiring an additional signer, especially a spouse, if an applicant qualifies for individual credit on his or her own merits. State law may require a joint owner of collateral to sign documents the lender reasonably believes are necessary to perfect its security interest. Generally, the co-owner must sign some form of security agreement or mortgage deed. However, check with your legal counsel to verify what signatures you need to perfect a security interest.

We have heard of many financial institutions having gender and marital discrimination issues cited in examinations. Your examiners clearly are looking at these issues and are finding problems.

Sex and marital status discrimination

The ECOA prohibits discrimination against loan applicants and customers on any of nine “prohibited bases,” including the original pair – sex and marital status. These aspects of applicants have nothing to do with creditworthiness.

There are a number of ways to discriminate along gender or marital status lines, including:

  • Refusing to grant credit or extending it on less favorable terms to female applicants.
  • Requiring cosigners for female applicants, regardless of creditworthiness.
  • Aggregating incomes and financial resources for married joint applicants but not for unmarried joint applicants.
  • Refusing to allow an applicant to choose to obtain credit using a birth-given surname, a married surname or a combined surname.
  • Terminating or changing an open-end account, without any evidence of inability or unwillingness to repay the debt when a customer’s marital status changes.
  • Requiring a spouse as a co-borrower for a married applicant.
  • Requiring spouses of married officers of a company to sign loan guarantees with the officers.

Blind spot

The spousal signature issue seems to challenge lenders, particularly commercial lenders, the most in the sex/marital status discrimination area. As noted above, a lender cannot require an applicant’s spouse or any other additional party to sign a debt instrument if the applicant meets creditworthiness standards without the extra signature.

Yet examiners still hear of senior bank managers and lenders who try to ‘tie up’ borrowers by requiring as many signatures as possible, often including spouses’ signatures on the note or guarantee. Bank and thrift examiners continue to find spousal signatures on notes or guarantees without any explanation in the file.

This practice—requiring a signature simply because the applicant is married—constitutes substantive discrimination and disparate treatment based on marital status. It harms the applicant, who cannot obtain individual credit, and the spouse, who must incur personal liability for a loan never sought and never required their signature.

In 2018, only one Federal Financial Institution Examinations Council (FFIEC) agency, the National Credit Union Administration (NCUA), referred a case of ECOA discrimination to the Department of Justice. That single referral followed 89 referrals from other agencies over the previous five years.

Significantly, the NCUA made its referral on the basis of marital status discrimination.

Regulatory response to Regulation B

In March 2003, the Federal Reserve Board (FRB) revised its Regulation B, which implements the ECOA to really just say, “We mean business. We mean what we have said for years and years.”

The Official Staff Commentary on Regulation B already stated that the fact that an applicant submits a joint financial statement may not be used to presume the application is for joint credit. With the 2003 amendments, the FRB revised Regulation B itself to say the same thing, since the FRB stated that commercial lenders, in particular, had not seemed to get the point.

To further make this point, the FRB added a requirement that a lender have some form of documentation for any additional signatures. The Commentary requires applicants to show their intent to apply for joint credit at the time of application. A promissory note signature does not prove intent to apply for joint credit. Applicants can establish intent with signatures or initials on a credit application, or on a separate form affirming their intent to apply for joint credit. The FRB (and now the Consumer Financial Protection Bureau, CFPB) requires a method of establishing intent that is distinct from the process of affirming the accuracy of information. Joint signatures at the end of an application are usually not enough.

The Commentary also states that lenders may not assume a borrower will transfer property title to remove it from collectors’ reach. The message—seemingly aimed at commercial lenders—is clear: using spousal guarantees to shore up a loan is not an acceptable way to underwrite business credit. Prudent, safe, and sound credit underwriting requires taking a security interest in property that supports the loan, rather than relying on guarantees that amount to little more than a moral commitment in bankruptcy court.

Other regulatory help for Regulation B

The Federal Deposit Insurance Corporation (FDIC) issued two Financial Institution Letters (FIL) with guidance on Regulation B’s spousal signature requirements to assist lenders in complying with their obligation to treat applicants fairly. Both are now classified as inactive – apparently as part of an effort to lessen regulatory burden several years ago – but still contain relevant and current guidance.

The earlier FIL (FIL-9-2002) includes steps financial institutions can take to avoid problems with the signature rules. Lenders should review and revise loan policies and procedures to eliminate those that are inconsistent with the spousal signature rules.

Specifically, those that require the:

  • Guarantee of a loan to a closely held corporation by the spouses of the partners, officers, directors or shareholders of the corporation.
  • Signature of the spouse on the note when the applicant submits a joint financial statement.
  • Signature of the spouse on the note when jointly owned assets are offered as collateral.

This FIL also advises lenders to add guidance on state law regarding what signatures are necessary in particular situations. Loan staff should be trained periodically on these rules to ensure they remain aware of what is expected and how to avoid compliance trouble. The FIL also recommends that compliance reviews include checks for spousal signature violations, particularly in loans to closely held corporations and in business loans supported by jointly owned property.

The later FIL (FIL-6-2004) includes a flowchart that guides lenders through the process of deciding when an additional signature may be required and when it is not.

Both issuances are available on the FDIC’s website under Inactive Financial Institution Letters. They can help all financial institutions — not just those directly supervised by the FDIC — avoid problems in this important area.

If we can help, please feel free to contact us.

What financial institutions need to know about the rise of digital lending

Written by admin on . Posted in Blog, Lending & Loan Review.

By Justin Schray; Credit Analyst, Young & Associates

Visiting a local bank or credit union isn’t always practical anymore. Mobile and digital lending platforms are reshaping financial services, giving consumers faster, more convenient and accessible options. Fintech leaders like SoFi, PayPal and Kabbage are driving this shift, using technology to meet borrowers’ changing needs.

One of the most significant advantages of mobile and digital lending is convenience. These platforms allow users to apply for loans, transfer funds and communicate with customer service representatives — all from the comfort of their home or while on the go. The digital loan application process is typically much faster than traditional methods, often delivering approvals within minutes. Furthermore, all necessary documentation is stored securely online, reducing the need for physical paperwork and enabling borrowers to access their information at any time.

Digital lending platforms also offer a wider range of services and investment opportunities. For example, many now provide “buy now, pay later” options, which are particularly popular among consumers making discretionary purchases, such as during vacations or seasonal shopping. Platforms like Kiva focus on providing microloans to entrepreneurs and small businesses, supporting underserved markets and fostering economic growth. This diversity in offerings ensures that digital lending can cater to a variety of financial needs and consumer preferences.

How financial institutions can compete and adapt to digital lending

To remain competitive in this evolving landscape, traditional financial institutions must invest in digital transformation initiatives that align with both consumer expectations and regulatory frameworks. While fintech’s have led the charge in agility and innovation, banks and credit unions can leverage their established reputations, trust and infrastructure to deliver equally compelling digital lending experiences.

Key steps institutions should take include:

  • Invest in digital infrastructure: Banks must adopt modern loan origination systems (LOS), mobile banking platforms and secure cloud-based storage to replicate the speed and accessibility offered by fintechs.
  • Partner with fintech providers: Collaborations with third-party technology vendors can accelerate the rollout of digital lending capabilities. Many vendors offer white-label or integrated solutions that align with the institution’s branding and compliance requirements.
  • Enhance user experience: Developing intuitive user interfaces and streamlined applications is essential. Borrowers expect minimal friction, clear disclosures and mobile responsiveness throughout the lending process.
  • Implement robust data analytics: Leveraging data to enhance underwriting, detect fraud and personalize lending solutions gives traditional institutions a competitive edge. Automation tools and AI-based decision-making can further improve efficiency.
  • Staff training and change management: Internal teams should be trained not only on new systems but also on the institution’s digital strategy and compliance responsibilities. Change management efforts are critical to ensuring organization-wide adoption.

Maintaining regulatory compliance with digital lending

Rolling out digital lending solutions requires strict adherence to consumer protection regulations, data privacy laws and industry best practices.

Institutions must:

  • Comply with lending regulations: Ensure all Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA) and Fair Credit Reporting Act (FCRA) disclosures are digitally available and easily understood by consumers.
  • Protect customer data: Maintain robust cybersecurity and encryption protocols to safeguard personally identifiable information (PII) in compliance with the Gramm-Leach-Bliley Act (GLBA) and other relevant laws.
  • Establish vendor due diligence programs: When working with third-party vendors, institutions must perform proper risk assessments, monitor ongoing performance and establish clear service-level agreements.
  • Maintain audit trails and documentation: Regulators expect comprehensive documentation of loan decisions, disclosures and communications. Digital systems should be configured to automatically store and organize these records.

By investing in the right technologies, developing a thoughtful rollout plan and embedding regulatory compliance into each phase, financial institutions can successfully transition into the digital lending space and offer competitive alternatives to fintech challengers.

Federal Crop and Livestock Insurance programs and what’s changing in 2025

Written by admin on . Posted in Advice, Blog, Commercial Underwriting, Consultation, Lending & Loan Review, Management & Planning, Risk Management, Strategic Planning.

By Craig Horsch, Consultant, Young & Associates

Overview of Federal Crop and Livestock Insurance programs

Federal Crop Insurance and Federal Livestock Insurance are supplemental insurances that cover losses which are unavoidable and caused by naturally occurring events. They do not cover losses resulting from negligence or failure to follow good farming practices related to crops and/or livestock.

Federal Crop Insurance Programs include three main programs—Price Loss Coverage (PLC), Agriculture Risk Coverage (ARC), and the Marketing Assistance Loan Program (MALP)—as well as the Whole-Farm Revenue Protection Plan 2025 (WFRP), per the USDA Risk Management Agency.

  • PLC overview:

    PLC program payments are issued when the effective price of a covered commodity is less than the effective reference price for that commodity. The effective price is defined as the higher of the market year average price (MYA) or the national average loan rate for the covered commodity. PLC payments are made to owners of historical base acres and are not tied to the current production of covered commodities. Covered commodities include wheat, corn, sorghum, barley, oats, seed cotton, long- and medium-grain rice, certain pulses, soybeans/other oilseeds, and peanuts.

  • ARC overview:

    There are two types of Agriculture Risk Coverage: Agriculture Risk Coverage–County (ARC-CO) and Agriculture Risk Coverage–Individual (ARC-IC).

    • The ARC-CO program provides income support tied to the same historical base acres—not current production—of covered commodities. ARC-CO payments are issued when the actual county crop revenue of a covered commodity is less than the county ARC-CO guarantee for that commodity.
    • ARC-IC provides income support based on a farm’s revenue from current production of covered commodities, compared with a benchmark average of that farm’s production of those commodities. However, payments are limited to a portion of the farm’s historical base acres. This page focuses on ARC-CO; the ARC-IC program has not been widely adopted.

  • MALP overview:

    The MALP allows producers to use eligible commodities they have produced as collateral for government-issued loans. Eligible commodities include wheat, corn, sorghum, barley, oats, upland and extra-long-staple cotton, long- and medium-grain rice, soybeans and other oilseeds, certain pulses, peanuts, sugar, honey, wool, and mohair.

  • WFRP overview:

    WFRP insurance provides coverage against the loss of revenue that you expect to earn or obtain from commodities you produce or purchase for resale during the insurance period, all under a single insurance policy. WFRP offers benefits such as:

    • A range of coverage levels from 50% to 85% to fit the needs of more farming and ranching operations;
    • Replant coverage for annual crops, except Industrial Hemp;
    • The ability to consider market readiness costs as part of the insured revenue;
    • Provisions to adjust the insurance guarantee to better fit expanding operations;
    • An improved timeline for farming operations that operate as fiscal year filers; and
    • Streamlined underwriting procedures based on the forms used for WFRP.WFRP is designed to meet the needs of highly diverse farms that grow a wide range of commodities and sell to wholesale markets. The WFRP policy was specifically developed for farms that market directly to local or regional buyers, sell through identity-preserved channels, and produce specialty crops, animals, and animal products. The amount of farm revenue you can protect with WFRP insurance is the lower of the revenue expected on your current year’s farm plan or your five-year average historic income, adjusted for growth. This represents an insurable revenue amount that can reasonably be expected to be produced on your farm during the insurance period. All commodities produced by the farm are covered under WFRP, except timber, forest and forest products, and animals used for sport, show, or as pets.It is important to understand that WFRP covers revenue produced during the insurance period. For example, if a calf weighs 800 pounds at the beginning of the insurance period and is sold at 1,200 pounds during the insurance period, the value of production will be the additional 400 pounds gained. Inventory adjustments are used to remove production from previous years and to add revenue for production that has not yet been harvested or sold.

Understanding USDA Livestock Insurance programs

Per the USDA Risk Management Agency website, the Federal Livestock Insurance Programs are as follows:

  • Livestock gross margin – Cattle:

    The LGM for Cattle Insurance Policy provides protection against the loss of gross margin (market value of livestock minus feeder cattle and feed costs) on cattle. The indemnity at the end of the 11-month insurance period is the difference, if positive, between the gross margin guarantee and the actual gross margin. The LGM for Cattle Insurance Policy uses futures prices to determine both the expected and actual gross margins. Adjustments to futures prices are based on state- and month-specific basis levels. The price the producer receives at the local market is not used in these calculations.

    Eligible producers are those who own cattle in the states of Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Texas, Utah, West Virginia, Wisconsin, and Wyoming. Only cattle sold for commercial or private slaughter — primarily intended for human consumption—and fed in one of the eligible states are covered under the LGM for Cattle Insurance Policy.

  • Livestock gross margin – Dairy Cattle:

    The LGM for Dairy Cattle Insurance Policy provides protection against the loss of gross margin (market value of milk minus feed costs) on milk produced from dairy cows. The indemnity at the end of the eleven-month insurance period is the difference, if positive, between the gross margin guarantee and the actual gross margin. The LGM for Dairy Cattle Insurance Policy uses futures prices for corn, soybean meal, and milk to determine the expected and actual gross margins. The price the producer receives at the local market is not used in these calculations.

    Any producer who owns dairy cattle in the contiguous 48 states is eligible for LGM for Dairy Cattle Insurance Policy coverage. Only milk sold for commercial or private sale—primarily intended for final human consumption—from dairy cattle fed in any of the eligible states is covered under this policy.

  • Livestock gross margin – Swine:

    The LGM for Swine Insurance Policy provides protection against the loss of gross margin (market value of livestock minus feed costs) on swine. The indemnity at the end of the 6-month insurance period is the difference, if positive, between the gross margin guarantee and the actual gross margin. The LGM for Swine Insurance Policy uses futures prices to determine both the expected and actual gross margins. The price the producer receives at the local market is not used in these calculations.

    Any producer who owns swine in the 48 contiguous states is eligible for LGM for Swine insurance coverage. Only swine sold for commercial or private slaughter—primarily intended for human consumption—and fed in the 48 contiguous states are eligible for coverage under the LGM for Swine Insurance Policy.

 

Policy outlook: Projected spending impacts of proposed PLC and ARC-CO changes

In light of potential 2025 farm policy changes, the article “Spending Impacts of PLC and ARC-CO in the House Agriculture Reconciliation Bill” by Schnitkey, Paulson, Coppess (University of Illinois), and Zulauf (Ohio State University), published in farmdoc daily, offers valuable insight into the budgetary and structural implications of proposed revisions to two cornerstone commodity programs: Price Loss Coverage (PLC) and Agricultural Risk Coverage at the County Level (ARC-CO).

Key proposed changes

Under the House Agriculture Reconciliation Bill, four primary changes to PLC and ARC-CO are proposed:

1. Statutory reference price increases:

From 2025 to 2030, statutory reference prices for major program crops would increase—for example, from $3.70 to $4.10 per bushel for corn (an 11% increase), from $8.40 to $10.00 for soybeans (19%), and from $5.50 to $6.35 for wheat (15%). Similar increases are also proposed for seed cotton, rice, and peanuts (Schnitkey et al., 2025, Table 1).

2. PLC payment floor adjustments:

The bill proposes new price floors for PLC payments—$3.30 for corn and $0.30 per pound for seed cotton—to limit downside price risk. These new thresholds would reduce outlays in low-price environments by capping PLC payment escalation.

3. ARC-CO enhancements:

Changes to ARC-CO include increasing the coverage level from 86% to 90% and the maximum payment rate from 10% to 12.5% of benchmark revenue, making the program more responsive during periods of reduced revenue.

4. Loan rate increases:

The bill also proposes a 10% increase in the loan rates for the six largest program crops, further enhancing the income safety net (Schnitkey et al., 2025).

Budgetary and distributional impacts

The authors estimate that these program changes would raise federal outlays for PLC, ARC-CO, and marketing loan programs from $46.5 billion to $76.4 billion between 2025 and 2035—a 64% increase (Schnitkey et al., 2025, Table 2). However, this increase is not evenly distributed across commodities or regions:

  • Southern crops—notably peanuts, rice, and seed cotton—would see the largest increases in payments per base acre. In contrast, traditional Midwestern crops such as corn and soybeans would receive more modest increases.
  • For farms with 500 base acres, estimated average annual payments under the proposed changes would be:

This disparity stems from differences in statutory reference prices across crops. Southern crops historically have higher relative reference prices, leading to larger government payments — an imbalance that would be widened under the proposed bill (Schnitkey et al., 2025).

Political and policy implications

To fund these increased outlays, the House Agriculture Committee is proposing spending reductions from the Nutrition Title, particularly the Supplemental Nutrition Assistance Program (SNAP). This cost-shifting pits agricultural and nutrition interests against each other and introduces politically sensitive trade-offs that could impact the outcome of future Farm Bill negotiations (Schnitkey et al., 2025).

Why this matters

For agricultural lenders and risk managers, particularly those serving Midwestern crop producers, the proposed updates could affect the farm income landscape, collateral valuations, and overall credit risk. Although support increases are significant for crops like rice and peanuts, the more moderate gains for corn and soybeans mean Midwest producers may see less benefit from the bill in its current form. Understanding the potential outcomes of these policy shifts can help financial institutions refine their risk assessments and prepare clients for what lies ahead.

Staying ahead in a changing agricultural risk landscape

As federal crop and livestock insurance programs evolve — and legislative proposals like those in the 2025 House Agriculture Reconciliation Bill signal substantial shifts in farm subsidy distribution — lenders must be prepared to navigate increased complexity in agricultural credit risk. From changes in PLC and ARC to adjustments in federal loan programs and WFRP, these developments have direct implications for borrower cash flow, collateral valuation, and overall lending strategy.

For financial institutions serving agricultural clients, now is the time to reassess risk management frameworks, update lending practices, and evaluate credit exposures in light of these changes.

Young & Associates has deep expertise in agricultural lending and credit risk analysis. Our team can help your institution proactively adapt, with services that include portfolio review, credit risk management consulting, and tailored support for ag-specific lending challenges. Whether you’re seeking to strengthen underwriting processes or prepare for policy-driven shifts in borrower performance, we’re here to help you respond with confidence.

Explore our lending and credit risk consulting services to learn how we can support your institution’s success in this evolving environment.

References

Coppess, J., C. Zulauf, G. Schnitkey, N. Paulson and B. Sherrick. “Reviewing the House Agriculture Committee’s Reconciliation Bill.” farmdoc daily (15):89, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, May 14, 2025. Permalink

Kalaitzandonakes, M., B. Ellison, T. Malone and J. Coppess. “Consumers’ Expectations about GLP-1 Drugs Economic Impact on Food System Players.” farmdoc daily (15):49, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, March 14, 2025. Permalink

Schnitkey, G., N. Paulson, C. Zulauf and J. Coppess. “Price Loss Coverage: Evaluation of Proportional Increase in Statutory Reference Price and a Proposal.” farmdoc daily (13):203, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 7, 2023. Permalink

Schnitkey, G., C. Zulauf, K. Swanson, J. Coppess and N. Paulson. “The Price Loss Coverage (PLC) Option in the 2018 Farm Bill.” farmdoc daily (9):178, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, September 24, 2019. Permalink

Schnitkey, G., N. Paulson, C. Zulauf and J. Coppess. “Spending Impacts of PLC and ARC-CO in House Agriculture Reconciliation Bill.” farmdoc daily (15):93, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, May 20, 2025. Permalink

The importance of field examinations in asset-based lending

Written by admin on . Posted in Advice, Blog, Commercial Underwriting, Lending & Loan Review, Management & Planning, Risk Management, Strategic Planning.

By Ollie Sutherin, chief financial officer, Young & Associates

Asset-based lending is a creative financing alternative that will unlock additional working capital for businesses. While it appears more complex than traditional commercial real estate transactions, the appropriate training and education eliminate intimidation. Many community financial institutions tend to avoid asset-based lending opportunities due to the perceived burden of ongoing monitoring. However, with the appropriate due diligence at the outset of a lending relationship, the process becomes significantly more manageable and efficient.

The reality of ongoing monitoring in asset-based lending

Having worked at a small regional bank, I experienced firsthand the detail-oriented process of handling asset-based lending monitoring. Line of credit renewals often relied heavily on borrowing base certificates (BBCs) — many of which lacked accuracy and detail. Field examinations were seldom part of the equation, and decisions were often based on whether the BBC appeared “sufficient” to support the requested loan amount, whether payments were current, and whether principal was being retired in a frequent manner. What was consistently overlooked were several critical elements:

  • Early detection of fraud or irregularities.
  • Evaluation of internal operational controls.
  • Comprehensive and consistent collateral eligibility testing.
  • Longitudinal trend analysis and risk monitoring.

Field exams: A vital tool for risk mitigation

In today’s competitive lending environment, speed and efficiency are crucial. However, it’s imperative not to sacrifice thorough due diligence for the sake of expediency. Relying solely on BBCs without incorporating periodic field examinations introduces significant risk — risk that could far outweigh the relatively modest cost of performing a field exam. The reality is clear: a field exam provides the lender with a deeper understanding of the borrower’s financial health, operational integrity, and collateral quality. The field exam also provides information that can be used to set appropriate advance rates for the various collateral types.

You don’t know what you don’t know

One illustrative example comes from a colleague who shared her first field examination experience shortly after completing her training and certification. She was tasked with examining receivables for a large borrower. Drawing on the tools and methodology she had just mastered, she uncovered a serious case of fraud whereby the borrower was systematically crediting and rebilling invoices once they aged past 90 days. This practice inflated the eligible receivables reported in the BBC and granted the borrower significantly more borrowing availability than permitted… Without the field exam, this fraud would likely have continued undetected — exposing the financial institution to considerable, non-avoidable risk.

While instances like these may not occur every day, they underscore an essential truth: you don’t know what you don’t know. Field examinations offer lenders a proactive mechanism to confirm the integrity of a borrower’s financial reporting and ensure continued creditworthiness. In asset-based lending, that peace of mind over your relationships far outweighs the small investment.

How Y&A can support your lending program

Asset-based lending can open new avenues for community financial institutions, but it also introduces unique risks that require careful, ongoing oversight — particularly through field exams and detailed collateral monitoring. As illustrated, relying solely on surface-level reporting leaves institutions vulnerable to inaccuracies and potential fraud.

Our Y&A Credit Services team provides a wide range of solutions that support strong credit risk management, including credit underwriting, underwriting reviews and credit administration. These services can help your institution build a solid foundation for managing more complex lending relationships like asset-based lending.

If your team is looking to enhance credit processes, improve documentation quality or strengthen internal controls, Young & Associates is here to help you prepare — strategically and confidently — for what’s ahead. Reach out to us today for a free consultation.

OFAC extends record retention requirements

Written by admin on . Posted in Advice, Blog, Compliance & Regulations, Consultation, News.

By Veronica Madsen; Consultant, Young & Associates

On March 21, 2025, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published its final rule to adopt the interim final rule extending certain recordkeeping requirements from five to 10 years. This extension is consistent with the statute of limitations for violations of certain sanctions administered by OFAC and became effective on the date of publication in the Federal Register.

The final rule also extended the period during which civil monetary penalties may accrue for late filing of reports required to be submitted to OFAC (e.g., blocked property and reject reports or reporting required under specific licenses), from five years to 10 years. The potential penalty amounts did not change.

The changes stemmed from the 21st Century Peace through Strength Act (Public Law 118-50), signed into law on April 24, 2024, which extended the statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act (50 U.S.C. 1701), and the Trading with the Enemy Act (50 U.S.C. 4301), from five years to 10 years.

OFAC published an interim final rule on September 13, 2024, and requested public comment. Despite the concern financial institutions needed more time to acquire additional resources and storage capacity, and to adjust their current recordkeeping practices to conform to the new recordkeeping requirements, OFAC finalized the rule as written due to the length of time provided since the law was passed.

What records must be retained longer?

Under the Federal Financial Institutions Examination Council (FFIEC) BSA/AML Examination Manual, transactions subject to the extended record retention requirement relate to the full and accurate record of each rejected transaction, including all reports submitted to OFAC. For blocked property (including blocked transactions), records must be maintained for the period the property is blocked and for 10 years after the date the property is unblocked.

How should banks prepare for this OFAC change?

Because the rule became effective upon publication, banks that have not already prepared for this change should ensure their systems are updated to retain these documents longer; policies, procedures and the OFAC risk assessment are amended to reflect the new retention requirement and extended risk of penalties associated with late filings; prepare or amend training content; and prepare for potentially increased compliance costs.

Conclusion

Navigating this kind of regulatory shift can feel overwhelming, especially when it demands swift operational changes and long-term strategic planning. That’s where Young & Associates can help. Our compliance experts are ready to assist with updating your OFAC programs, reviewing risk assessments, and supporting your team in building a sustainable, compliant approach to record retention. Contact us today to ensure your institution is fully prepared for this new 10-year horizon.

Credit Unions: Prepare for increased cybersecurity exam scrutiny in 2025

Written by admin on . Posted in Advice, Blog, Consultation, Cybersecurity & Information Security, Information Technology, IT Audit, IT Program Design & Implementation, Management & Planning.

By Mike Detrow, CISSP; Director of IT & IT Audit, Young & Associates

Is your credit union ready for stricter NCUA cybersecurity examinations?

There have been some signals over the past few years that the NCUA is focusing more attention on cybersecurity and may be increasing scrutiny in this area during upcoming exams. In this article, I will identify these signals and also provide steps that credit unions can take to prepare for this potential in their next exam.

Looking back at the NCUA’s Letters to Credit Unions from January 2022 through present, we see the following regarding cybersecurity:

  • January 2022: The NCUA continues to develop updated information security examination procedures
  • January 2023: The NCUA will continue to have cybersecurity as an examination priority
  • January 2024: The NCUA will continue to prioritize cybersecurity as a key examination focus
  • October 2024: The NCUA provided the following reporting statistics regarding the cyber incident response notification rule: “From September 1, 2023, the effective date of the NCUA’s cyber incident notification rule, through August 31, 2024, federally insured credit unions reported 1,072 cyber incidents. Seven out of ten of these cyber incident reports were related to the use or involvement of a third-party vendor.”
    • This letter also identifies the following four key focus areas for boards of directors:
      • Ongoing cybersecurity education for the board of directors and credit union employees
      • Approval of a comprehensive information security program that includes risk assessments, security controls and incident response plans and is reviewed and updated at least annually
      • Oversight of operational management
      • Ensuring that an effective incident response plan is in place and includes specific requirements
  • January 2025: Cybersecurity remains a top supervisory priority and the NCUA urges each credit union’s board of directors to prioritize cybersecurity as a top oversight and governance responsibility

What do these cybersecurity trends mean for credit unions?

While the NCUA has identified cybersecurity as an examination focus area or priority in their supervisory priority statements for 2023, 2024, and yet again for 2025, the key information that identifies the potential for a more significant regulatory change is identified in the October 2024 letter. This letter states that 1,072 cyber incidents were reported over a one-year period and that seven out of ten of these incidents were related to the use or involvement of a third-party vendor.

While the information provided does not include any details about the severity of these incidents or how many may be attributed to a single vendor or single credit union, it would be hard for this number of reported cyber incidents not to get the attention of examiners and credit union management when it averages out to nearly three incidents per day. At a minimum, these statistics identify the need for better oversight of vendors by credit unions and potentially regulators. It also indicates that approximately 320 of the reported cyber incidents were not specifically attributable to the use or involvement of a vendor, which points to potential deficiencies in cybersecurity controls at the affected credit unions.

How credit unions can prepare for 2025 cybersecurity exams

The identification of key focus areas for boards of directors in the October 2024 letter is also noteworthy. This spells out specific recommendations for a credit union’s training program, information security program, oversight of operational management, and the incident response plan.

The recommendations for the oversight of operational management are very specific and include the following:

  • Set clear expectations regarding the due diligence of third-party vendors with respect to information security.
  • Ensure that cybersecurity is a core value within the credit union and influences decision-making.
  • Provide access to cybersecurity expertise and an adequate budget for the appropriate cybersecurity technologies and tools.
  • Place an emphasis on vulnerability management, patch management, application and website whitelisting and blacklisting and threat intelligence.
  • Engage external parties with appropriate expertise to conduct audits of the cybersecurity program.
  • Establish a framework for ongoing reporting of the status of the cybersecurity program including risk assessments, risk management and control decisions, service provider arrangements, results of testing and any recommended changes to the program.
  • Protection of data backups including secure storage and other controls to protect from ransomware as well as periodic testing to verify the recoverability of data.
  • Ongoing training for members to promote sound cybersecurity practices.

This is a potential indication that there will be more regulatory focus on evaluating the effectiveness of the board’s cybersecurity oversight and additional efforts to hold the board accountable if it does not take steps to promote cybersecurity as a core value within the credit union to mitigate potential cybersecurity threats.

How should credit union leaders prepare?

The board of directors and senior management should ensure that the credit union puts each of the recommendations identified in the October 2024 Board of Director Engagement in Cybersecurity Oversight (24-CU-02) letter into practice. While some credit unions may have internal resources to help with this process, many credit unions will benefit from having an independent consultant review their information security program, policies and procedures, incident response plan, vendor management practices, and technical security controls to identify areas for improvement to comply with the NCUA’s recommendations. The consultant can provide templates and other resources for management to use to implement the recommended improvements. The consultant can also be engaged to assist the credit union with the implementation of the recommended improvements.

How can Young & Associates help?

Young & Associates offers the following services to both evaluate and improve your cybersecurity program and security controls by identifying weaknesses and assisting with corrective actions to help you better protect your credit union from current cybersecurity threats.

  • IT Audits
  • Internal and External Vulnerability Assessments
  • Internal and External Network Penetration Testing
  • Social Engineering Tests
  • Policy templates, including an Incident Response Plan designed specifically for credit unions
  • Cybersecurity Program Development

For more information about our cybersecurity consulting services, contact us today.

Incorporating core competencies into performance reviews

Written by admin on . Posted in Advice, Blog, Consultation, Human Resources, News.

A strategic approach for organizational success

By Clarissa Sinchak, PHR; director of HR, Young & Associates

It is widely known that performance reviews are key to how your organization can measure individual and, ultimately, company-wide growth and success. Performance reviews are not just about measuring what employees have accomplished throughout the year but are also created to identify opportunities to grow, develop and achieve their full potential through meaningful and intentional conversations with their managers. Additionally, they offer a chance to recognize achievements, identify areas for improvement, and set future goals and objectives. However, the real power of performance reviews is evident when core competencies are strategically aligned with your company’s goals. In doing so, it ensures that individual employee contributions are recognized and directly tied to the mission and vision of the organization, ultimately fostering a purpose-driven workforce.

What are core competencies?

In today’s competitive business world, organizations must possess specific strengths to separate themselves from the competition to guarantee long-term success. These strengths, also known as core competencies, establish the organization’s foundational knowledge, skills, defining products, services and capabilities that give a business an advantage over its competitors and ultimately drive its growth. These are behaviors and skills that employees in your company often either inherently possess or aim to develop over time to achieve their personal goals and perform well in their roles.

When leaders clearly define and communicate these strengths, they help ensure that all employees see a direct connection to the organization’s mission, which promotes more significant commitment and greater individual contributions. By aligning them with organizational goals, business leaders can ensure that employees prioritize the desired behaviors and work habits that contribute to them.

Some common examples of core competencies might include, but are not limited to:

  • Initiative
  • Decision-Making
  • Teamwork
  • Communication
  • Adaptability
  • Client Service
  • Technical Job Knowledge
  • Interpersonal Skills
  • Integrity

How to develop your organization’s core competencies

Developing core competencies within your organization requires deliberate thought, strategic alignment with the company’s long-term goals and a commitment to continuously improving. Business leaders should take a systematic approach when incorporating them into the performance review processes.

Defining the organization’s mission & goals

First, developing core competencies begins with understanding the organization’s purpose and aspirations, so business leaders should clearly define this in addition to their goals. Once they achieve this, leaders should openly communicate their strategy to employees to create buy-in and to build an overall understanding. A clearly articulated company vision is the basis for identifying the areas where the organization must excel. Leaders ensure transparency in communication by focusing the core competencies on capabilities that directly contribute to the company’s competitive positioning.

Identifying strengths & gaps in current capabilities

A second essential step in creating core competencies is identifying your company’s strengths and gaps. Leaders can evaluate and analyze current skills, resources, and processes by working with human resources to conduct an internal assessment. This analysis highlights areas of expertise within the organization and exposes any opportunities for improvement. Understanding your organization’s current state makes it easier to create development initiatives in the areas that guarantee the most significant value.

Fostering a culture of learning & development

A third key step in developing core competencies is promoting a workplace culture that prioritizes learning and development for employees at all levels of the organization. Investing in their growth is imperative because employees are fundamental to any company’s success. When leaders offer training programs, mentoring, and knowledge-sharing programs, employees build expertise in the company’s defined core competencies. Promoting open and ongoing communication, recognizing achievements, and encouraging accountability ensures employees work towards the same objectives.

Continuously evaluating & adapting competencies

Lastly, it is essential to note that core competencies require continuous modification and evaluation as your company’s goals progress over time. For example, the market might change, client expectations might evolve, and competitors undoubtedly will vary over time. Therefore, evaluating and monitoring your core competencies and considering these potential changes is critical. Continuously assessing the effectiveness of these core competencies within performance reviews while simultaneously benchmarking against your industry’s standards is essential to guarantee that they remain relevant and have a desired impact. This creates a consistent and ongoing framework for evaluating employee contributions, making reviews transparent and predictable while reinforcing the organization’s core values and priorities.

In summary, establishing core competencies within your organization is a significant undertaking that combines internal strategy and alignment while focusing on developing your employees to set them up for success. Companies that can build and maintain these core competencies position themselves to grow and thrive. By incorporating core competencies into performance reviews, companies will see an uptick in employee engagement and the desire to increase their productivity to enable the organization to propel forward.

2025 begins with a normal yield curve – but where is the risk?

Written by admin on . Posted in Advice, Blog, Consultation, Interest Rate Risk, Liquidity Management, Management & Planning, News, Risk Management.

By Michael Gerbick; president, Young & Associates

On Wednesday, Jan. 29, 2025, Jerome Powell and the Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 4.25 – 4.50 percent after three successive cuts totaling 100 bps in September, November and December. Heightened attention and focus continue on the yield curve, as the curve’s shift has been dramatic in recent years.

Yield curve over the years

The chart below shows the yield curve at five different points in time from Jan. 2022 to Tuesday, Feb. 18, 2025. The shape of the curve has gone from normal to inverted and now back to normal. Looking at a few different US Treasury Bond maturities over the last 14 months, you can see the one month yield has decreased over 120 bps and the 20 year has increased over 60 bps! Each rate curve shape and elevation imply different opportunities for your balance sheet. A more asset-sensitive and positive gap on a balance sheet may be more attractive for earnings in the short term and helpful when the Fed was raising rates in 2022 and 2023.  A more liability-sensitive and negative gap on a balance sheet may be more attractive for earnings in the short term as the Fed reduces rates. Your ALCO likely understands these shifts well and has managed these drastic movements and their impact on overall strategy.

The normal yield curve indicates improved expectations for economic growth in the years ahead. That said, there is also caution for inflation. When the Fed began rate reductions, there were discussions regarding more cuts totaling 100 bps by year end 2025. Then these ambitious views have shortened to perhaps two cuts of 25 bps each. The yield curve still stands above its level from several years ago, and the Fed Funds rate exceeds the previous cycle’s peak of 2.25–2.50 percent in 2018–2019. The consumer is savvier than they were at that time as well.

At the end of 2024, we spent time interviewing some of our community banker colleagues to gain a pulse on what they are talking internally about in their ALCO meetings concerning interest rate risk. As expected, there is relief to have a normal yield curve instead of managing the inverted one of recent years. Many reasons still create an overall sense of caution heading into 2025, with two key factors briefly discussed in the following sections.

Cost of deposits

Community banks may not realize the full impact of the Fed’s rate reduction in their cost of deposits. Given the continued elevated competition for deposits and the more savvy consumer, community banks may find their deposit rate offering slower to adjust than the Fed’s rate movements and some may see their interest expense actually increase in 2025. There may also be migration to more longer term duration CDs. (movement from less than 6 months to 1 year or more). Yes, longer term CDs will keep the deposit costs higher than non-maturity but will create welcomed funding stability. Continued focus on the bank’s deposit makeup and shifts are necessary. Staggering the CD maturities will be critical for community banks to manage this new environment so as to maintain adequate liquidity levels as CDs mature and consumers make a choice to reinvest, migrate to shorter term or perhaps withdraw their funds.

Investments

Community banks made many investments with PPP funds and other excess liquidity in a low-rate environment back in 2021. The Fed raised rates 550 bps and many of those investments contributed to a significant amount of unrealized loss. The Fed cut rates 100 bps, and the yield curve no longer shows an inversion. Rates remain elevated, and community banks still hold a significant amount of investments on their balance sheets with unrealized losses. The chart below shows the fair value of investment portfolio expressed as a percent of the amortized cost of the investment portfolio over the last four years for commercial banks.

You can see all three asset sizes over the last four years have a similar trend line. Consider a bank having $100MM in their security portfolio, it is likely its portfolio is currently $7-$10MM underwater. This changes each day as these investments continue to reprice and mature over time.  As they do, bank management is faced with how best to serve its bank. Either by in reinvesting short-term or long-term within their investment portfolio or funding higher yielding loan growth opportunities. Each has liquidity and capital implications that must be considered.

Conclusion

Community banking is resilient. The conversations with community bankers reveal their drive to prepare and plans for managing risk in 2025 and beyond. ALCO and Boards of Directors should continue their sharp focus on managing interest rate risk.  If the deposit competition is fierce for your bank and interest expense in 2025 is expected to be elevated, then focus on what is within your bank’s control. On the asset side of the balance sheet, consider paying attention to the loan and investment portfolios and when they are repricing, what additional loan fee income can be generated, revisiting discussions and confirming the types of loans the bank is comfortable making.

When considering interest rate risk, confirm your bank’s risk profile and remember to stay within the board approved risk parameters. Your bank’s balance sheet may have experienced significant change away from a neutral risk position given the economic environment recently. If you have found your bank is outside the risk parameters, discuss strategies with your board that are designed to get the bank back within acceptable risk thresholds.  Always be clear with the board on expectations and inform them we may not be able to fix this overnight.  One banker said it best when providing advice for community bankers trying manage the interest rate risk of the bank, “Always manage the bank’s IRR to a better position, even if getting to that position takes years… don’t get ahead of your skis and try to do it all in one day.”

Thanks to community bankers that spent time discussing IRR and sharing insights in the interest of helping others.

If you’d like to hear more about our ALM services, reach out as we’d be happy to discuss and assist.

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